China chip material export controls just the tip of the iceberg, warns official

World powers scramble into emergency meetings as US Treasury Secretary heads to Beijing for talks

China's move to restrict exports of two elements used in semiconductors has sparked concerns ahead of a visit to Beijing by the US Treasury Secretary, with one Chinese official warning that this is "just the beginning."

Chinese authorities announced on Monday that they were introducing export controls on gallium and germanium and some key compounds of both, such that anyone wishing to ship those materials abroad will first have to apply for a permit with the country's Ministry of Commerce.

This is most concerning because China is a major source of these materials, causing some to worry it could foreshadow a clampdown on other elements for which China controls much of the supply.

In Brussels, the European Commission said it was assessing the potential impact on global supply chains and called on China to only employ export restrictions where there are clear security considerations, which is in line with World Trade Organization (WTO) rules, Reuters reported.

"The Commission is concerned that these export restrictions are unrelated to the need to protect global peace and also stability and the implementation of China's non-proliferation obligations arising from international treaties," a spokesperson said.

According to the Financial Times, South Korea's commerce ministry held an emergency meeting to discuss the latest move by Beijing, with the deputy commerce minister saying the possibility of restrictions being expanded to other goods could not be ruled out.

Officials in Tokyo were also said to be examining the impact of these latest export controls, with hints that Japan may take up the matter with the WTO, while Taiwan's deputy foreign minister said the new rules would likely serve as a spur for other nations to reduce their dependence on China for supplies of critical materials.

The US has yet to officially respond to the restrictions announced by the Chinese Ministry of Commerce on Monday, but Treasury Secretary Janet Yellen is due in Beijing on Thursday for talks that are aimed at thawing relations between the world's two largest economies.

Treasury officials have said they are expecting Secretary Yellen to have "candid" discussions with her Chinese counterparts regarding export restrictions on both sides, but no major breakthroughs are expected this week.

Although Beijing gave national security interests as the reason for its new export rules, the consensus elsewhere is that this is China's response to restrictions that have been imposed against it by the US and other countries.

There are also concerns that China could choose to widen its export measures to other materials in future to ratchet up pressure on Washington and its allies, and more raw materials used in electronics such as rare earth minerals could be on the shortlist.

These fears would appear to be justified by comments from China's former vice minister of commerce, Wei Jianguo, who told China Daily the new measures are just the first steps Beijing could take.

"This is just the beginning of China's countermeasures, and China's tool box has many more types of measures available. If the high-tech restrictions on China become tougher in the future, China's countermeasures will also escalate," Wei is reported as saying.

Such rare earth minerals include neodymium, yttrium and lanthanum, and China controls the largest reserves of many of these elements globally, although there have been concerted efforts over the past decade to develop alternative sources.

Proposing the European Critical Raw Material Act last year, President Ursula von der Leyen said: "Lithium and rare earths will soon be more important than oil and gas… we must avoid becoming dependent again, as we did with oil and gas." ®

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